Duration: 10/01/2010 to 09/30/2015

Administrative Advisor(s):

NIFA Reps:

Non-Technical Summary

Statement of Issues and Justification

Statement of Issues and Justification


Commodity marketing and pricing skills of producers and agribusiness managers have historically been fragile when compared to their skills in production and management. Further, commodity marketing and pricing issues are frequently topics of public policy and public debate. The need to better understand commodity markets is important for producers, agribusiness managers, consumers, academics, government agencies, and the groups which interact in public education and policy forums.


Research into applied commodity price analysis, forecasting, and risk management has been an area of strong need for decades, and continues to be an area of need. This is especially true given the dynamic nature of commodity markets. Indeed, change in these markets is ongoing, and understanding the principles behind this change is important if interested parties are to respond in an optimal manner. A few notable issues which have impacted commodity markets in recent years include the rapid growth of the bio-fuels industry, concern regarding excess speculation in commodity futures markets, increased volatility of commodity prices, rapid adoption of computerized trading platforms and consolidation of organized futures exchanges, food safety scares, and the continued industrialization and structural change of the food and agribusiness sector.


Indeed, understanding commodity market behavior and market risk management tools remains important for successful agribusiness management. While the 2002 Farm Bill returned producers to a realm of direct payments, these payments are decoupled from production and marketing decisions. Thus, there is less government market intervention and more market response due to economic factors. Further, while government programs and policies impact a large section of agricultural commodity markets - namely feed and food grains - livestock and meat markets have historically seen less government intervention. Recently, however, government intervention in the form of mandatory price reporting for example, further warrants the need to better understand how this and other policies impact the behavior of livestock prices. There are also large sectors of the agricultural economy that remain largely deregulated through the 1996 Farm Bill - the largest example here are dairy product markets.


Continual development of risk management tools such as options, crop insurance, livestock insurance, and a plethora of over-the-counter contracts (swaps, marketing agreements, weather derivatives, and other derivative contracts) has dramatically increased the set of risk management tools available to producers and agribusiness managers along the food and resource supply chain. Therefore, producers and educators need information regarding risks and returns associated with this myriad of price, production, and revenue risk management products. Increased market globalization has made commodity markets much more sensitive to world market conditions, which has heightened the need for improved market information and analysis. Together, significant and rapid changes in policy, market globalization, and proliferation of risk management tools, have significantly altered many of the factors affecting commodity prices and appropriateness of various risk management strategies.


As a result, improved forecasting and related risk management decisions in both the public and private sectors have greater value. Increased complexities of market behavior enhance the need for improved forecasting and risk management. There is a clear need for continuing research and education regarding potentials and limitations of commodity market analysis and risk management tools available. This includes dissemination of both the information and an assessment of the risks associated with decisions based upon that information.


Agricultural economists have pursued research interests in price analysis, forecasting, and market risk management for decades. These pursuits have at times resulted in fragmented, uncoordinated, and duplicate activities. In 1981, agricultural economists with research, extension, and industry focus were invited to meet, discuss mutual interests in these areas, and organize a multi-state coordinated effort. Since 1983, annual conferences (previously under the project number NCR-134 and more recently NCCC-134) have been held which facilitate this collaborative spirit. Annual attendance from academicians (both research and extension), government, industry economists, market analysts, and agribusiness managers has been in the 40-80 person range since the inception of this project. In fact, the past two years (2008 and 2009) have seen some of the largest attendance at the conference in its history given the recent hot-button issues related to commodity markets (e.g., bio-fuels; record high commodity prices and corresponding volatility) with numbers approaching 90 participants. Participants are largely agricultural economists working in academia or in extension positions (at both land grant and non-land grant universities), government, and industry. Participants come from throughout the U.S., some provinces of Canada, and increasingly the European Union. In recent years, there has been a considerable increase in the number of industry attendees, helping to bridge the gap between academic research and industry practice.


This multi-state project has over 25 years of high quality applied research to its credit. In any given year, 30% to 60% of the papers presented at the conference will become published in peer reviewed journals. The project also maintains a website for dissemination of conference papers and other important conference announcements (http://www.farmdoc.uiuc.edu/nccc134/). Papers from all conferences since 1981 are archived on the website. From April 2008 to March 2009, the website received over 256,000 total hits. Interestingly, approximately 40% of these hits were from outside the United States. Of these total hits, approximately 39,000 were actual downloads of archived conference papers. More than half of these downloads were of conference papers presented prior to 2008, demonstrating the lasting impact that the project has had on fostering and disseminating research in commodity price analysis, forecasting, and risk management.


Furthermore, the research is integrative, and responsive to change and need. Topics addressed by participants in this committee read like a summary of the most important problem-oriented topics facing commodity markets. These are the topics that have been, and continue to be, important to producers, policy makers, and industry groups. Some of these areas include the: usefulness of futures, options and forward contracts for risk management, usefulness of new risk management tools such as over-the-counter contracts, accuracy of government and private forecasts, basis behavior and basis predictability, impact of farm program changes on producer and commodity industry profitability, impact of food safety events on commodity market prices, impacts of contracting, captive supplies and marketing agreements on livestock industry profitability, potential market power and resulting influence on consumer and producers prices, usefulness of crop and livestock insurance schemes, impact of the globalization of commodity markets, impact of trade, and the BSE events in North America and the impact on livestock markets. Further, the group is responsive to new issues. The impact of bio-fuels demand on commodity prices, evaluation of the adequacy speculation, the impact of index fund investing on commodity prices, and concerns regarding convergence of certain commodity basis are examples of new work and collaboration.


In addition to communication between professionals, the committee has played an important role in mentoring graduate students in a professional setting. Many of the graduate students who presented papers over the years continue to participate in the conference. In fact, most of the current academic participants were active in the conference when they were studying in their respective graduate programs. Today, many of these participants now bring their own graduate students to present and participate in an excellent forum dealing with cutting edge issues and methods in these important applied research areas.


Those attending the NCCC-134 conferences have indicated a strong interest in continued dialog on commodity price analysis and risk management issues with other academic, business, and government colleagues. All of the agricultural economists attending the conference, representing various land grant and non-land grant institutions throughout the United States as well as government and industry entities, indicate they want to continue attending and participating. As a result, there is substantial interest and sufficient need to justify extending the committee for five additional years. The extension of this committee is indeed critical in order to foster continuation of this highly successful multi-state research collaboration in the area of commodity price analysis, forecasting, and risk management.


This is the premier forum where applied commodity market researchers meet, discuss research, educate and learn from students, interact with business economists, develop ideas, and discuss the current state of research and outreach and identify problems to address in the future.

Objectives

Procedures and Activities

The NCCC-134 project will continue to use procedures and activities that have been successful over the history of the project.


The project is an information sharing and applied research communication project. An annual meeting will be held where papers will be presented. The structure of the meeting is such to allow discussion, debate, and other communication regarding the presented research as well as relevant broader issues on the topic(s) of commodity price analysis, forecasting, and market risk management.


The annual meeting will be held in the spring (typically April), consistent with past meetings. The April meeting date is an important piece of continuity, as NCCC-134 committee participants and the academic / agribusiness community at large have come to expect the meeting to be held in April. Therefore, the tradition of holding the meeting in April should continue to maximize attendance as well as visibility of the conference.


Presented papers will be selected from a pool of submitted proposals. A formal call for proposals will be distributed in the summer prior to the meeting, with review of proposals and finalization of program taking place in the fall prior to the meeting. Proposals will be reviewed and ranked by a group of NCCC-134 committee members. The conference coordinators in conjunction with the proposal reviewers, will ensure that the final program of papers are of high quality and impact, and that the presenters reflect a representative cross-section of NCCC-134 committee members, universities, research faculty, extension faculty, graduate students, as well as government and industry analysts/researchers who work in the area of applied price analysis and forecasting. In developing the final program, care will be taken to invite moderators from a broad representation of NCCC-134 committee members, as well as other experts, in order to foster vibrant discussion in the paper sessions.


The conference will be organized over a two-day period. The first day will consist of two concurrent paper sessions. The second day will include two concurrent paper sessions in the morning, followed by a lunch and luncheon speaker. The conference coordinators will focus their efforts on securing a luncheon speaker from industry or government that can focus on important real world issues in commodity price analysis to complement the academic paper sessions. Historically, two additional concurrent paper sessions followed the luncheon speaker. However, in 2009 the NCCC-134 committee decided to follow the luncheon speaker with two presented papers where the topic(s) complemented that presented by the luncheon speaker. The feedback of the committee from this programmatic change was extremely positive, in that the committee noted the format helped foster considerable discussion related to the theme presented by the luncheon speaker, and also helped to increase industry participation at the luncheon. Given the success of this change, it is likely that this format will be suggested for future meetings.


Upon completion of the meeting, authors will work closely with the moderators to obtain feedback on their papers, in particular to incorporate/address issues that were discussed in the paper sessions. Revised and edited papers will be posted to the NCCC-134 project website hosted by the University of Illinois (http://www.farmdoc.illinois.edu/nccc134/). To date, the NCCC-134 website has had numerous hits and downloads of papers (39,000 actual downloads of papers from March 2008 to April 2009), and has become a well-known web resource on the topic of commodity price analysis, forecasting, and market risk management. Papers will also be posted on the University of Minnesota Libraries web site: AgEcon Search. This is a searchable database of agricultural economics research and papers. The database is well known and the works in the database are readily available to anyone with web access.


The project will primarily communicate through electronic methods: email, listserv, NCCC-134 website, and other web postings. Considerable effort will be made to publicize the annual conference to both U.S. and international academic institutions (namely land-grant institutions and other institutions that maintain a focus on agriculture and agribusiness), industry organizations, trade groups, and government agencies (e.g., USDA; CFTC) in order to maximize conference participation and maintain diversity of participants. The project will primarily coordinate the annual meeting but will also relay information on applied commodity price analysis, forecasting, and market risk management topics to any person who has participated in past meetings. This includes related meetings and conferences, special journal issues and other publications, and results of participant research projects. Further, the project will attempt to facilitate communication between professional economists with like interests and needs.

Expected Outcomes and Impacts

Projected Participation

View Appendix E: Participation

Educational Plan

Organize annual conference involving economists and marketing analysts associated with university research, university extension, business, and government agencies. The conference will involve a call for papers where new and preliminary research findings are encouraged.


The annual conference will be publicized through electronic media and newsletters of agricultural economics professional organizations. Agribusiness trade organizations will be contacted individually to help foster industry / academic participation and interaction.


Selected papers will be presented at the conference.


Selected papers from the conference organized by the regional committee will be published after peer commentary and review. Papers will be published through electronic media, in particular the NCCC-134 website and AgEcon Search.


An economist or other industry professional who works for or with a related commodity industry, agency, or firm will be invited to each meeting to speak at the luncheon. The invited speaker will be asked to speak about real-world problems, issues, needed research, and research experiences.


Working groups will be organized to explore joint research, extension, and publication efforts.

Organization/Governance

This committee will be governed by an executive committee and coordinated by a chair that is also a member of the executive committee. The executive committee is put together such that 1) different geographical locations within the U.S. - and the commodities that are produced in those regions - are represented, 2) university faculty with research and extension appointments are represented so that there is a balance between applied and basic research, and 3) there will be at least one industry representative. Committee members will serve as long as they are interested in contributing to the project. Should a committee member resign, the chair will take nominations from other committee members and a repeated-election will be held until a majority vote is achieved. The executive committee will convene in a business meeting immediately following the annual meeting. Input will be solicited from meeting participants as to meeting location, structure, executive committee membership, and chair.

Literature Cited

Attachments

Land Grant Participating States/Institutions

AR, AZ, CO, DE, FL, GA, IA, IL, IN, KS, KY, MI, MN, ND, NE, NH, OH, OK, PA, SD, TX, UT, WA, WV

Non Land Grant Participating States/Institutions

Arizona State University, Southern Illinois University